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University of Nebraska - Lincoln
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Hedge Fund Replication With A Genetic Algorithm: Breeding A Usable Mousetrap, Brian C. Payne, Jiri Tresl
Hedge Fund Replication With A Genetic Algorithm: Breeding A Usable Mousetrap, Brian C. Payne, Jiri Tresl
Department of Finance: Faculty Publications
This study tests the performance of 14 hedge fund index clones created using parsimonious outof- sample replication portfolios consisting solely of easily accessible assets. We employ a genetic algorithm to integrate two traditional hedge fund replication methods, the factor-based and payoff distribution replication methods, and evaluate over 4500 commonly held stocks, bonds and mutual funds as replicating portfolio components. In-sample performance indicates that hedge funds have return series similar to portfolios of commonly held assets, and out-of-sample results provide evidence that the in-sample relationships can hold with infrequent rebalancing. This hedge fund replication attempt rates well relatively to prior efforts …